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“Each success only buys an admission ticket to a more difficult
problem” is a statement often attributed to former Secretary of
State Henry Kissinger.

Any entrepreneur with a successful restaurant venture faces
an interesting prospect: Is the next move to open
another restaurant that mirrors the successful one
in another location? Or is it better to leverage the
infrastructure of the existing business to establish a
different kind of restaurant in the same town?

Or should a restaurant group be created to include a
steakhouse, a Mexican restaurant and a seafood restaurant in the
same city? Might the single concept be extended to multiple
locations? Or maybe the entrepreneur just wants to focus
attention on this first restaurant.

While running a single restaurant can make for a
successful enterprise, the financial rewards are usually
limited. The owner might carve out a decent living if the
restaurant is successful but the chances of becoming wealthy
are very slim.

For those ready to expand a restaurant business, the best
way to proceed may seem counterintuitive. It turns out that
leveraging the infrastructure of the existing restaurant to
create a mixed-concept local restaurant group will probably
result in only a fraction of the value that could be attained
from focusing on a single concept in multiple locations.
Leveraging the infrastructure of an already launched
business may generate cash flow and acclaim but not wealth,
which we believe requires the “multiple effect.”

A single concept that's focused and perfected can result in
faster growth than trying to realize multiple new concepts
that are so far unproved. If the original concept works, stick
with it. Value will increase by a factor greater than the number
of units because success has already been shown.

A business has current value and future value. The existing units
have a current value and the future value would be the current
unit's cash flow plus that of the planned unit. In short,
creating a concept that can be applied to multiple units would
enable the restaurant entrepreneur to receive value not only
for the existing units but also for the ones that could be
created in the future.

Restaurant companies that rely on multiple
concepts may be bought or sold based on the cash flow
generated -- with no value assigned to future units if
the new ideas have not been proved successful in multiple
markets.

1. Develop a real estate strategy that identifies locations where
the concept is a cultural and demographic fit.

2. Prove unit-level operating economics: The first unit
should have above-average financial results for there to a
second unit to be opened.

3. Create reproducible efficiencies and systems by adopting
best practices of the industry and documenting
front-of-house and back-of-house procedures.

4. Design a capital structure and secure investment for the first
unit with follow-on commitments for two more units if identified
financial hurdles are met.

5. Prove geographical diversity when selecting the
second and third units.

6. Demonstrate operations efficiency at the units’ diverse
locations.

So whether the goal is to create the next In-N-Out Burger chain
or just to boost wealth by duplicating a successful
deli-cafe in the next town over, put serious time into planning
ahead. Remember that while it's possible to arrange for two or
more restaurants to look alike and serve the same food, the
second and subsequent projects willl need just as much
attention as the first -- from the owner and from staff.